Question

On January 1, Year 1, Friedman Company purchased a truck that cost $32,000. The truck had an expected useful life of 8 years and an $7,000 salvage value. Friedman uses the double-declining-balance method. What is the book value of the truck at the end of Year 1

Answer 1

Answer:

Friedman Company

Book Value of the truck at the end of Year 1 = $24,000, determined as follows:

Book value = cost minus accumulated depreciation.

Book value = $32,000 - (double-declining-balance depreciation)

Therefore, book value at the end of the first year will be equal to $32,000 * 75% or $32,000 - $8,000 (25% of $32,000) = $24,000

Explanation:

The double-declining-balance method of depreciation is an accelerated depreciation method that expenses an asset's cost more rapidly than the straight-line depreciation method. The formula is to determine the useful life of the asset, divide 100 by this useful life, and then multiply this number by 2 and use it as a percentage to depreciate the asset on a reducing balance basis.

In Friedman Company, the useful life is 8 years or 12.5% (100/8) yearly.  Therefore, the depreciation rate will be 25% ( 2 * Straight-line percentage).

Note that initially the salvage value is not considered in calculating the depreciable amount.